Banks must disclose '08 Fed help

With the Supreme Court declining to intervene, the Federal Reserve is preparing to disclose what financial institutions borrowed from the central bank’s emergency “discount window” during the worst of the credit crisis in 2008.

Banks fought a two-year battle with the Fed attempting to block release of the data, requested by Bloomberg News, because they feared the information on emergency loans, which has historically been confidential, might make banks appear weak and lead investors and depositors to panic.

Story Continued Below

But the Supreme Court last week let stand a lower court order forcing the release of the information, and the Fed is preparing to distribute it, perhaps within the next two weeks or so.

Now the question becomes, with the banks more than two years removed from the financial crisis and much stronger financially, will anyone really care what the information shows?

And did the banks essentially win by delaying release of the data this long?

“I didn’t even know it was happening,” a senior bank executive said by phone this week when asked about concern over the pending release. There are no crisis meetings to discuss how to manage public reaction to release of the information, he said.

The calm seems fairly well founded. It’s hard to overstate just how much better shape the banking industry is in today compared with the crisis of 2008.

Citigroup, which required massive federal bailouts to avoid collapse, this week took the largely symbolic but nonetheless remarkable step of reinstating a quarterly dividend of one cent.

And it announced a reverse stock split to boost its shares back into the $40 range from the $4 range. (The 10-1 share exchange does not change the overall value of the stock.)

Meanwhile, the Fed last Friday announced details of its review of the finances of the nation’s 19 largest banks and approved long-awaited dividend increases and share-buyback plans by many institutions that had been hamstrung by restrictions put in place during the crisis.

Immediately after the Fed announced its results, JPMorgan Chase said it would increase its dividend from 5 cents a share to 25 cents, putting significant money in the pockets of its investors. It also said it would buy back shares.

In addition, Goldman Sachs and others announced plans to buy back some outstanding shares.

Of course, there’s always the chance the data will prove embarrassing or show that banks claiming not to have needed federal help actually went to the central bank, hat in hand.

And there are those who say banks are far from out of danger, especially given the possibility of further erosion in the housing market or the effects of world events.

As Christopher Whalen, analyst at Institutional Risk Analytics, noted in a recent comment to investors, Citigroup’s one-cent dividend “is a far cry from the $2.16 payout in 2007.”